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Buying a home that's part of a homeowners association (HOA) is different than buying a standard home. It's often the case that condos and townhouses are part of an HOA, but non-attached houses can be part of one as well.
Not familiar with an HOA? It's a private organization responsible for managing a given housing community. Typically, when you buy in an HOA, you're responsible for maintaining your own home, but the HOA is charged with the upkeep of all common areas, like your housing community's playground, gym, or swimming pool.
Buying a home that's part of an HOA isn't necessarily a bad thing. In fact, by going this route, you can benefit from certain amenities that a non-HOA home doesn't have. For example, you might get access to a swimming pool without having to be personally responsible for changing its chemicals and keeping it clean. But before you buy in an HOA, here are a few things you should know.
1. You may be subject to costly monthly dues
HOA fees can vary tremendously from one housing community to another, so there's really no preset formula for determining what they'll amount to. But be aware that they can be costly, and the more amenities your housing community offers, the higher those dues are likely to be. Your seller will need to disclose what those fees are, though, before you commit to a home purchase, so you'll at least know what you're dealing with.
2. You could face strict rules
HOAs are governing boards that get to dictate how their respective housing communities are run. This means that if you buy in an HOA, you may be told what you can and cannot do with your own property. For example, your HOA might impose certain rules with regard to the upkeep of your home, what it's used for (meaning, whether you can or can't run a business out of your home), and, in some cases, even what pets you're allowed to own. Be sure to read up on all of the rules before making an offer on a home in an HOA.
3. You may have a harder time getting a mortgage
Your debt-to-income ratio is one factor that mortgage lenders take into account when determining what loan amount you qualify for. This ratio measures your existing debt relative to your income. When you buy a home in an HOA, your monthly dues count as debt for the purpose of that calculation. That could make it more difficult for you to get a mortgage, or it might limit the amount you're eligible to borrow.
4. You may have a more difficult time selling your home
Because HOAs impose certain restrictions and can charge high monthly dues, you may find that it's more difficult to sell a home in an HOA than it is to sell a regular home. If you're buying a starter home that you expect to sell pretty quickly, it could pay to look outside of an HOA to avoid a potential hassle.
HOAs certainly aren't all bad. In fact, they can actually protect you as a homeowner, because they'll often prevent your neighbors from doing things that lower the value of your home (like failing to properly maintain their own properties). But before you buy in an HOA, beware the drawbacks above and make sure you know exactly what you're getting into.